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If lawmakers reduced the tax break for donating to charity, would givers turn stingier? That's an important question that Congress considered on Valentine's Day in hearings deciding the fate of the charitable-giving tax deduction. The deduction has stood since 1917, four years after the income tax was introduced. But it costs about $40 billion a year in forgone tax revenue, or 4.7% of this year's projected budget shortfall.

So the hunt is on to find a way to grab back revenue without gutting the philanthropic sector and America's globally recognized generosity. Uncle Sam needn't pull an Uncle Scrooge and target charitable giving directly. Some tax-reform proposals call for applying a single limit to all deductions—say, $25,000 per person each year, or 2% of income. Under such plans, taxpayers who use up their allotment with their mortgage-interest deduction would get nothing back for their donations.

Other proposals call for reducing the tax break by making it less regressive. As things stand now, high earners can save nearly 40 cents in federal taxes for each dollar they donate, while many middle earners save half as much. Low earners who don't itemize their deductions on their tax returns save nothing from donations. One study found that 2006 taxpayers making more than $100,000 gave 57% of all charitable donations but took 76% of all the tax savings coming from charitable deductions. A refundable tax credit equal to, say, 15% of donations would spread the cash more evenly, even though it might have unintended consequences.

Will Congress be able to gut the charitable deduction without destroying America's charitable nature?
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That's because of the "price elasticity of giving," the amount of additional giving that is bought with each dollar of lost government revenue. Naturally, charities argue that the price elasticity of giving is quite high, but no one is sure what the number is. There are clues, however. Sweeping tax changes in 1986 hiked the cost of giving, but donations remained stable in all but the highest tax brackets, suggesting the price elasticity of giving is high for top earners and low for others. The last thing Congress should do, if that's the case, is make the break flatter by imposing a cap. It should impose a floor instead, like the one on medical costs, which are deductible only after they exceed 7.5% of adjusted gross income.

After all, most people give some base amount to charity, regardless of tax breaks. Churchgoers tithe because God commands it, not because the IRS rewards it. Your reporter gets a deduction on membership fees to the local zoo and museums, even though he signs his family up out of self-interest. Take away his federal subsidy and he will still pay. Recognize, too, that the rich often give to hospitals, universities, and museums; those of modest means prefer the offering plate. Flattening the deduction could leave churches flush but other institutions wanting.

But some researchers claim there is a recipe for raising tax revenue without cutting into giving. Roger Colinvaux at Catholic University, Brian Galle at Boston College, and Eugene Steuerle, a former Treasury economist testifying before Congress, published a paper last year analyzing four proposals for the charitable-giving deduction. For each, they offered two numbers, one assuming high price elasticity and the other, low. A proposal they examined replaced the deduction with a refundable credit. That would raise tax revenue somewhere between $9.7 billion and $10.4 billion, but reduce charitable giving by $6 billion to $10.8 billion. A cap would raise similar revenue and cut giving by a tad less.

By keeping the current deduction, but tweaking it with a floor of 1% of adjusted gross income, the numbers improve sharply. The researchers estimate that revenue would rise by $10.4 billion to $10.5 billion, while donations would drop by a more modest $1.4 billion to $2.4 billion. The best formula appears to raise the floor to 1.7% of adjusted gross income, while making the deduction an "above the line" one, meaning even nonitemizers qualify. Tax revenue in that case shoots up by $10.4 billion to $11 billion, while giving is estimated to remain unchanged. (A slightly lower floor would give up some revenue but result in a rise in giving.)

Skeptics might prefer to focus on nonmonetary proposals. To boost donations, Steuerle wants to extend the deadline for giving to tax day, April 15. Yale economist Robert Shiller, meanwhile, wants a system where donations are deducted automatically on W-2 forms. According to Harvard law professor Daniel Halperin, the charity-related section of the tax code was last organized in 1969 and has been amended many times since. "It's all over the place," he says. So whatever the new system, tidying up the portion of the code explaining charitable deductions would be an act of true generosity.